Auditor Reports, Audit Fees, and CEO Compensation

Yinghong Zhang, Chunwei Xian

Abstract

We run the regressions of CEO cash and total compensation on changes in audit opinions and changes in audit or total fees. Our findings show that the incidence of non-standard opinions reduces cash or total compensation. Then after the issuance of going concern opinions, CEOs receive more current incentive compensation relative to total compensation. Finally, there is a positive correlation between changes in cash or total compensation and changes in audit or total fees. Our results show that the audit opinion is one determinant of CEO compensation while auditors charge higher audit or total fees to compensate for the high litigation risk associated with increases in CEO compensation.

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